Lumber Prices Show Good News for Jobs

It has not garnered much attention in the financial media, but the price of lumber futures has more than doubled over the past year.  That is great news for timber companies and sawmills, and it is also good news for the overall jobs market once we factor in the normal lag in response.

We like to use lumber prices as a leading indicator for many things, including short term interest rates, real estate prices, and new home sales.  In this week's chart, the price of lumber is shown inverted to reveal how it gives us a leading indication for initial jobless claims.  This inverted lumber price plot is shifted forward by 42 weeks to show how the movements in lumber prices show up again in initial jobless claims after that lag period. 

The correlation is not perfect, as these leading indication comparisons never factor in all of the influences on the data they lead.  And lumber does not really tell us very well about the magnitude of the oscillations in the jobless claims data.  It is the timing that is the relevant information.

The recent peak in jobless claims arrived in January 2009, which was ahead of lumber's schedule.  Had jobless claims followed the leading indication correctly, the peak should not have appeared until December 2009.  What likely happened was that the press coverage of the 2008 financial meltdown (Lehman bankruptcy, TARP, TALF, stimulus, etc.) led businesses to curtail production and layoff workers sooner than the economic conditions themselves might have dictated.  That caused an early climax for layoffs and for initial jobless claims. 

Now the leading indication is reaching the point that equates to the rapid rise in lumber prices.  That rapid rise shows up as a rapid drop in this chart, given lumber's inverted scaling.  The next several months should see a rapid improvement in the jobs market, echoing the rapid rise in lumber prices 42 weeks prior.